Bank rate remains at record low

The likelihood of a rate rise seems to have receded as 2015 opens
The likelihood of a rate rise seems to have receded as 2015 opens

Interest rates have been left on hold amidst low inflation and concerns about the economy.

The Bank of England’s decision after its first monetary policy meeting of the year means the UK is heading for six years of rates at the historic low of 0.5 per cent after they were slashed in March 2009.

Inflation is at a 12-year low of one per cent and expected to fall further as oil prices slide, meaning experts see little reason for an increase in the cost of borrowing.

The expected continued drop in the Consumer Price Index (CPI) measure of inflation will mean Bank governor Mark Carney having to write to Chancellor George Osborne to explain why it is more than one per cent off its two per cent target.

Policy-makers will not want to see the UK edging too close to negative inflation of the kind that has taken hold in the eurozone, threatening a damaging deflationary spiral in which consumers hold off purchases as prices head lower.

The Bank’s monetary policy committee (MPC) is also likely to be concerned about a slowdown in recovery.

Latest survey data from December pointed to fourth-quarter gross domestic product (GDP) growth of 0.5 per cent, down from 0.7 per cent in the previous period.

Official figures last month showed the recovery during 2014 was slower than previously thought, with GDP in the Q3 2.6 per cent ahead on the same period in 2013, down from an earlier estimate of three per cent.

The figures also showed the UK was increasingly reliant on household spending, damaging hopes for a rebalancing of the economy as business investment shrank.